Unused Vacation Pay Must Be Paid To Departing Employees In Maryland

UPDATE (2016): Maryland employers with a written policy limiting the accrual of paid leave to employees can cap payout upon employee termination so long as employers comply with amendments to Maryland Wage Payment and Collection Law. Please see our update here. The Maryland Department of Labor has changed its position on whether unused vacation time […]

UPDATE (2016): Maryland employers with a written policy limiting the accrual of paid leave to employees can cap payout upon employee termination so long as employers comply with amendments to Maryland Wage Payment and Collection Law. Please see our update here.

The Maryland Department of Labor has changed its position on whether unused vacation time is a “wage” under Maryland law. Under its new position, unused vacation time must be paid to departing employees regardless of the employer’s policy. This is a change from the Maryland DOL’s previous position that employee had no right to payment for accrued, unused vacation time at termination if the employer’s policy clearly denied them that right.

UPDATE 5.14.2008 — PLEASE READ THIS POST FROM MAY 13, 2008, REGARDING THE NEW LAW IN MARYLAND DEALING WITH ACCRUED LEAVE.

The Maryland Guide to Wage Payment and Employment Standards now states: “When an employee has earned or accrued his or her leave in exchange for work, an employee has a right to be compensated for unused leave upon the termination of his or her employment regardless or the employer’s policy or language in the employee handbook.”

This is a change from the previous Maryland Guide which made payment of unused vacation time dependent on the employer’s policy.

The change in position was apparently brought about by an unpublished lower court decision that called the Maryland DOL’s previous position into question. In Catapult Technology v. Paul Wolfe, No. 997 (Aug. 20, 2007) (unpublished), the Maryland Court of Special Appeals held that unused paid time off constitutes a “wage” under the Maryland Wage Payment and Collection Law, and thus must be paid to employees upon termination. Catapult’s policy required employees to give two weeks notice of their intent to resign. If they did not provide the two-weeks notice, under Catapult’s policy, employees forfeited their right to universal leave that had accrued. “Universal leave” included paid time off for illness and vacation.

Employees who resigned without giving the two-week notice, and therefore were not given leave pay, brought suit. The court ruled in the employees’ favor, finding that because leave accrued based upon the number of hours worked, the leave was a “wage” that could not be withheld at termination.

Due to Catapult, and the Maryland DOL’s resulting change in position, Maryland employers now must pay unused accrued vacation to employees upon termination, regardless of any policy to the contrary. “Use it or lose it” policies that typically require employees to use or forfeit accrued paid leave by the end of year are also brought into question due to the Maryland DOL’s change of position. Although neither Catapult nor the Maryland Guide expressly address “use it or lose it” policies, based on the rationale underlying Catapult they are unlikely to survive in Maryland.

(Contributed by Michael K. Wilson, Esq.)

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